HCA845/2024 FOREVER CONCORD LTD AND OTHERS v. LAU KWONG & FUNG (A Firm) AND OTHERS - LawHero
HCA845/2024
高等法院（民事訴訟）Deputy High Court Judge Laurence Li SC17/3/2026[2026] HKCFI 1543
HCA845/2024
HCA845/2024 FOREVER CONCORD LTD AND OTHERS v. LAU KWONG & FUNG (A Firm) AND OTHERS
HCA 845/2024
[2026] HKCFI 1543
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 845 OF 2024
________________________
BETWEEN
FOREVER CONCORD LIMITED (Receivers and Managers Appointed)
Plaintiff
ATHORA LUX INVEST S.C.SP. - LOAN ORIGINATION
Intended 2nd Plaintiff
APOLLO CREDIT FUNDS ICAV
Intended 3rd Plaintiff
and
LAU KWONG & FUNG (A Firm)
1st Defendant
YEUNG YET HE
2nd Defendant
FAMEWAY FINANCE LIMITED
3rd Defendant
HAU, LAU, LI & YEUNG (A Firm)
Intended 4th Defendant
________________________
Before:
Deputy High Court Judge Laurence Li SC in Chambers
Date of Hearing:
11 September 2025
Date of Decision:
18 March 2026
________________________
D E C I S I O N
________________________
Two Applications
1. The Plaintiff commenced these proceedings with a Writ and a Statement of Claim (“SOC”) dated 7 May 2024. It took out a Summons dated 22 November 2024 to add the Intended 2nd and 3rd Plaintiffs and the Intended 4th Defendant and to amend the SOC by revising certain wordings and adding new claims (“Amendment Summons”).
2. There appeared to follow a few rounds of tussle amongst the parties (including the intended parties) about filing of evidence which led to repeated time extensions.
3. The 1st Defendant then also took out a Summons dated 11 June 2025 to strike out the Plaintiff’s claims (“Strike-out Summons”).
4. The parties’ positions are essentially that: the Intended 2nd and 3rd Plaintiffs agree to be added to assert their claims; the 1st Defendant seeks to strike out all claims against it as demurrable and/or an abuse of process and on the same bases opposes the amendment; the 2nd Defendant takes a neutral stance; the 3rd Defendant is being wound up and the 1st Plaintiff will not pursue the claims against it; the 4th Defendant denies the claims against it and opposes being joined.
5. Substantive argument took a full day before me. At the end of the hearing, I remarked to Counsel that it was one of the most cleverly and meticulously argued cases I had encountered. I have since reread the written submissions, which reinforce my view that all Counsel have done impressive work.
6. I have also found that, legal arguments aside, once the facts are distilled and put in a sensible order, it becomes plain how the claims should be analysed.
The Facts
7. The parties’ dispute arose from a real estate sale and purchase and loan transaction. The sale and purchase was terminated, but the loan meant to finance the transaction was not repaid. The lending side are now seeking recovery from parties who received or handled the loan proceeds.
8. In more detail, some pertinent facts appear as follows. For present purposes, these facts are not in serious dispute.
9. The relevant property was a house on the Peak (“Property”). Its legal owner was Joy Rich Development Limited (in liquidation) (“Legal Owner”). It was subject to a first mortgage in favour of Revelry Gains Limited (“1st Mortgagee”) and a second mortgage in favour of Fameway Finance Limited, the 3rd Defendant herein (“2nd Mortgagee”).
10. The Legal Owner being in liquidation, the mortgagees put the Property up for mortgagee sale. On the information before me, it appears that the 2nd Mortgagee was spearheading that sale effort.
11. Ms Yeung Yet He, the 2nd Defendant herein (“Buyer”), was interested in buying the Property. To finance the intended purchase, she obtained a loan of up to HK$100 million (“Loan”) from Athora Lux Invest S.C.SP. - Loan Origination and Apollo Credit Funds ICAV, the Intended 2nd and 3rd Plaintiffs herein (“Lenders”).
12. The Loan was structured in a somewhat elaborate way, with a number of arrangements and control mechanisms. The Facility Agreement dated 28 March 2022 (“Facility Agreement”) ran to 140 pages, excluding signature pages.
13. Numerous clauses of the Facility Agreement were cited to me. It is not necessary to set them out. Suffice to summarise the overall design.
14. The Buyer’s wholly owned corporate vehicle Double Winner Asia Limited (“HoldCo”) was named as borrower of the Loan. Its wholly owned subsidiary Forever Concord Limited, the Plaintiff herein (“BidCo”), would be the bidder in the mortgagee sale and (if its bid was accepted) the purchaser of the Property. The Buyer, HoldCo, and BidCo were all liable for the Loan.
15. The Loan was specifically for the sole purpose of, and its use was limited to be in, BidCo making the requisite deposit in order to submit a bid for the Property in the mortgagee sale (“Deposit”). There was even a clause which prohibited the use of proceeds of the Loan to pay for any other part of the purchase price.
16. The Lenders had a right to appoint, and later did appoint a Mr Phillip Mintz (“Mr Mintz”) to be, a director of each of HoldCo and BidCo. Thus the Buyer and Mr Mintz became the two directors of each company. Hau, Lau, Li & Yeung, the Intended 4th Defendant herein (“HLLY”), made the relevant corporate filings for the companies.
17. HoldCo and BidCo were further prohibited from entering into any material agreement other than certain defined documents in connection with the mortgagee sale without the Lenders’ consent.
18. The published document for the mortgagee sale (“Mortgagee Sale Tender Document”) contained provisions stipulating that the Deposit shall be held by Lau Kwong & Hung, the 1st Defendant herein (“LKH”), as stakeholder and not be released to the 2nd Mortgagee until the intended sale and purchase of the Property is completed.
19. Drawdown of the Loan was to be paid to HLLY as solicitors acting for BidCo in the mortgagee sale.
20. The 1st Mortgagee, the 2nd Mortgagee, and their directors were parties to the Facility Agreement and were liable for the due performance by the Buyer, HoldCo, and BidCo of their obligations.
21. The intent and effect of the Facility Agreement were obvious. The proceeds of the Loan may only go towards BidCo making the Deposit in the mortgagee sale. All parties (other than the Lenders themselves) are liable to ensure so. Any deviation would require the Lenders’ consent.
22. Further, clearly the Lenders meant to restrict and was relying on various restrictions on the ability of the Buyer, HoldCo, BidCo, and/or the 2nd Mortgagee to deal with the proceeds of the Loan.
23. The parties to the Facility Agreement were advised by lawyers during the negotiations. The 2nd Mortgagee was advised by LKH. The Buyer, HoldCo, and BidCo were advised by HLLY. Both LKH and HLLY were aware of the contents of the Facility Agreement and Mortgagee Sale Tender Document.
24. On 1 April 2022, the Lenders remitted the full amount of the Loan, i.e., HK$100 million, to HLLY.
25. On 8 April 2022, HLLY for BidCo submitted a bid at the price of HK$320 million to LKH as the 2nd Mortgagee’s solicitors. The requisite deposit was 20% of the bid price. HLLY sent a cashier order in the sum of HK$64 million to LKH. In the cover letter, HLLY stated that this was “subject to your [LKH’s] undertaking to hold the same in accordance with the terms of the Mortgagee Sale Tender [Documents]”.
26. On 4 May 2022, LKH informed HLLY that BidCo’s bid was the highest and the 2nd Mortgagee would cause the liquidators of the Legal Owner to convene a meeting of the creditors to approve the sale. In another letter on the same day, LKH referred to the “deposit of HK$64 million now hold [sic] in our trust account” and sought the Lenders’ consent for it to release HK$42 million to the mortgagees (waiving the requirement that it shall not release the Deposit until completion of the intended sale).
27. By a letter dated 18 May 2022, the Buyer, HoldCo, BidCo, and the 2nd Mortgagee repeated the request for consent. The letter stated that the Deposit was then “with [LKH] who is holding the same as stakeholder of [the 2nd Mortgagee] in accordance with the terms of the Mortgagee Sale Tender Document” and that after the release LKH would continue to hold the balance subject to those terms.
28. The Lenders did not consent. Later they granted a one-time waiver for the release of a much lesser amount of HK$266,400 to be used to settle the government rent for the Property.
29. On 9 March 2023, the 2nd Mortgagee informed the Lenders that the Legal Owner’s creditors did not consent to the intended sale of the Property, thus the intended sale had to be terminated, and that the Deposit held “on trust by [LKH] will be refunded to [HLLY]”.
30. On 7 September 2023, HoldCo and the Lenders agreed that the Loan (plus relevant interest and fees) shall be repaid to the Lenders by 29 September 2023. Repayment, however, did not occur.
31. On 6 October 2023, the Lenders’ solicitors issued demands to the Buyer, HoldCo, BidCo, the 1st and 2nd Mortgagees, and the mortgagees’ directors for repayment. But repayment continued to be outstanding.
32. On 18 January 2024, receivers were appointed and took over BidCo (“Receivers”).
33. On 24 January 2024, the Receivers wrote to HLLY to request details of usage of funds in BidCo’s and HoldCo’s client account.
34. On 30 January 2024, HLLY replied to the Receivers that:
(a) The entire HK$100 million had been paid out;
(b) HK$64 million had been remitted as the Deposit;
(c) HK$12.15 million had been applied to pay for the fees of the Lenders, the 1st and 2nd Mortgagees, and BidCo;
(d) HK$14 million had been paid to LKH on 13 February 2023, with HK$10 million marked on LKH’s receipt as “deposit as stakeholder” and HK$4 million as “cost on account”; and
(e) HK$9,850,000 had been paid to LKH on 16 January 2024, as marked on LKH’s receipt as “further deposit”.
35. A fury of correspondence ensured. On 16 April 2024, LKH informed the Receivers and BidCo that it had already released the Deposit, the additional HK$14 million, and the additional HK$9,850,000 to the 2nd Mortgagee on 7 May 2022, 13 February 2023, and 16 January 2024.
36. These purported payments and releases of funds (“Purported Payments and Releases”) were patently inconsistent with the terms of the Facility Agreement and Mortgagee Sale Tender Document.
37. The explanation offered by the Buyer, HoldCo, BidCo, HLLY, the 2nd Mortgagee, and LKH is that the Buyer, HoldCo, BidCo, and/or the 2nd Mortgagee had entered into a set of Heads of Terms on 1 February 2023 (“Alleged Heads of Terms”) and alleged authorisations, cumulating in a Framework Agreement on 5 January 2024 (“Alleged New Agreement”), for the purpose of restructuring the Legal Owner in lieu of the mortgagee sale.
38. It is said that these documents served to validly authorise the Purported Payments and Releases. It is further said that the Lenders were aware of the negotiations of these matters.
39. These documents are obviously at odds with the overall intent and design as well as the particular terms of the Facility Agreement. They even contain provisions which state so expressly.
40. No explanation has been offered as to how HoldCo and BidCo could properly enter into the Alleged New Agreement, or how LKH or the 2nd Mortgagee could accept or make the Purported Payments and Releases in (at least apparent) contravention of the Facility Agreement, without Mr Mintz’s approval and without the Lenders’ consent.
41. There are other matters which raise questions. For instance, if there were the Alleged Heads of Terms and the Alleged New Agreement, how could the payments of HK$14 million and HK$9,500,000 still be said to be “deposit” and “further deposit”? How could the 2nd Mortgagee say to the Lenders on 9 March 2023 that the Deposit held “on trust by [LKH] will be refunded to [HLLY]”? How could LKH have released the Deposit to the 2nd Mortgagee on 7 May 2022, and still on
42. BidCo contends that it has and has pleaded sustainable claims against the Defendants.
Legal Principles
43. The legal principles governing amendments of pleadings and striking out claims are trite and not in dispute.
44. Amendment especially at an early stage of proceedings should be readily allowed unless the new claim based on the amendment is bound to fail. While the Court is entitled to have regard to merits of the case, it should only do so when the merits are apparently, and so apparent as not to required prolonged investigation. See: Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 (CA) §25.
45. Allegations of fraud, dishonesty or other serious impropriety should be pleaded with sufficient particulars such as to enable an inference of the impropriety to be drawn at trial from the pleaded facts and matters. See: Convoy Global Holdings Limited & Ors v Cho Kwai Chee Roy & Ors [2018] HKCFI 2111 at §10.
46. Applications to strike out any claim will only succeed in plain and obvious case. The claim must be obviously demurrable; the pleading plainly bad; and it must be impossible, not just improbable, for the claim to succeed. However, plain is not the same as simple; obvious is not the same as short. If, on careful analysis, a claim can be shown to be bound to fail, it should be struck out. See: Polyline Development Ltd v Ching Lin Chuen [2021] HKCFI 483 at §§10-15.
47. Two dozen other case authorities were cited to me. They do not add much to and certainly do not contradict the well-known principles.
The Plaintiffs’ Claims
48. Counsel for BidCo have produced a useful table of the claims, both existing and newly raised by the amendment.
49. As I noted above, the Buyer takes a neutral stance. Insofar as the Amendment Summons relates to her, the Summons is granted.
50. As I also noted, the 2nd Mortgagee is being wound up. BidCo will not pursue claims against it. I shall leave it to the parties to consider any necessary consequential amendments.
51. I turn to analyse the claims against LKH and HLLY.
Claims Against LKH
52. BidCo asserts three claims against LKH, said to be for:
(a) Breach as stakeholder contrary to the Mortgagee Sale Tender Document and conditions therein, and/or undertaking, and/or breach of trust;
(b) Dishonest assistance by HLLY, the 2nd Mortgage, and LKH of the Buyer’s and each other’s breach of fiduciary duty and/or breach of trust; and
(c) Unlawful means conspiracy regarding the Loan proceeds.
53. The claim in dishonest assistance is perhaps logically the most straightforward. The pleaded facts, indeed such facts as are not in serious dispute, support an arguable case that the Buyer was acting in breach of her fiduciary duty to BidCo; that HLLY, the 2nd Mortgagee, and LKH knew of this and a constructive trust should be imposed on the funds in their hands; and that they then acted in breach of trust. It is also arguable that HLLY acted in breach of its fiduciary duty to BidCo; that the 2nd Mortgagee and LKH knew of it; and that they then acted in breach of trust.
54. LKH’s and HLLY’s answer is essentially that they were acting on instructions and relied on the instructions as properly authorised. But this answer cannot be a complete one. Whether LKH or HLLY is entitled to rely on alleged instructions, and whether they acted honestly in allegedly relying on the instructions, depend on proof of such instructions and, more importantly, its knowledge of facts potentially vitiating the validity of such instructions.
55. As I have set out above, at least at this stage, the facts do raise questions about these matters. Of course one does not lightly impute fault to a professional person. But it is also true that a professional person can be expected to be more mindful of certain matters.
56. It is difficult to imagine how professionals who have advised on and/or participated in a set of contractual commercial arrangements with a clear overall intent and design could think it right to facilitate payments and releases of large sums of money patently against those arrangements. It is also difficult to imagine why they would not exercise basic prudence and simply sought to ensure the relevant consents were given.
57. After all, the very intent and design of the arrangements which the parties (with advice from professional lawyers) had put in place was so that the proceeds of the Loan, including the Deposit, should not be applied in any way without the consent of the Lenders including, when it came to acts and authorisations by HoldCo and BidCo, through Mr Mintz’s position as one of two directors of those companies.
58. LKH and HLLY had not (yet) proffered much of an answer to the above.
59. Put in another way, it is well conceivable that, at trial, on the pleaded facts and matters, absent further explanations, inferences could be drawn against LKH and HLLY including on the questions of breach of duty, knowledge, and honesty.
60. Counsel for LKH stress that inferences could not be based on conjecture, speculation, and suspicion. See: Convoy Global Holdings Limited at §10. I agree.
61. In the present case, BidCo has pleaded enough concrete facts and matters, including particular clauses in contractual agreements, express assurances in written correspondence, specific payments and releases (with dates and amounts), as well as their effects and inconsistencies.
62. On present materials, the claim for dishonest assistance is not demurrable and not an abuse of process.
63. The claim for unlawful means conspiracy in a sense builds on the claim for dishonest assistance. In another sense, it does not appear to add much. Indeed, the pleaded case, in three short paragraphs, is that the pleaded facts and matters supporting the claim for dishonest assistance also support a claim for unlawful means conspiracy.
64. I was therefore initially attracted to the powerful submissions of Counsel for LKH (as well as those of Counsel for HLLY) that the claim for unlawful means conspiracy lacks sufficient particulars. On reflection, however, I have come to a different conclusion.
65. A claim for unlawful means conspiracy requires four elements: agreement, intention to injure, unlawful acts, and loss. In the present case, that the last element is pleaded is not in dispute. The pleading of unlawful acts is the payments and releases and the attendant alleged breach of duty, breach of trust, and dishonest assistance. Intention to injure is also pleaded and follows from the allegedly improper payments and releases of money which would be detrimental to BidCo.
66. The element of agreement is less straightforward. The fact of an agreement has been pleaded. But, as is well known, agreement should be pleaded with particulars on matters as to parties, time, contents etc. It is in this regard that Counsel for LKH make most of their criticisms. They also make the point that liquidators (and equally receivers) are not relieved of the obligation to plead particulars simply because of a lack of personal knowledge. See: Cyberworks Audio Video Technology Ltd v Mei Ha (HK) Company Limited [2020] HKCFI 398 at §43.
67. In the circumstances of this case, however, these matters are apparent enough from the facts and matters as are pleaded. The parties to the alleged agreement are expressly named and in any event obvious. The contents are also obvious, viz., to make the payments and releases, by way of the unlawful acts, to the detriment of BidCo.
68. Time of the agreement is less obvious. No exact date or time period is pinpointed. But it can be readily deduced that the time must be before the payments and releases. Moreover, in this case, the absence of an exact date or time period does not make it any harder for the Defendants to formulate their respective answer to the allegation of agreement.
69. Thus I have come to the conclusion that the claim for unlawful means conspiracy is not demurrable or an abuse of process.
70. Turning to the claim for breach as stakeholder and/or breach of trust, Counsel for LKH argue that LKH could not have in breach of any obligation because it was entitled to rely on instructions and the validity of such instructions. For the reasons already explained above, this is not a complete answer.
71. Counsel further argue that there was no trust. I agree that a stakeholder is not necessarily a trustee. I am also impressed by Counsel’s meticulous review of the wordings in the various documents, to the effect that a trust is not a foregone conclusion. But one must acknowledge that there are wordings which suggest the parties could have meant LKH to act as a trustee.
72. In addition, the overall intent and design of the arrangements was clearly that the Deposit was to be applied for one purpose only. There is an arguable case for a Quistclose trust.
73. The claim for breach as stakeholder and/or breach of trust is not demurrable and not an abuse of process.
Claims Against HLLY
74. BidCo makes four claims against HLLY, for:
(a) Lack of authority;
(b) Breach of fiduciary duty and/or breach of trust;
(c) Dishonest assistance; and
(d) Unlawful means conspiracy.
75. As I noted earlier, once the facts are distilled and viewed in a logical order, it becomes plain how the claims should be analyzed.
76. For the claim for lack of authority, BidCo has a well arguable case that HLLY could not derive (and could not have believed it had proper) authority from the Buyer’s instructions, given what else it also knew.
77. The same applies for the claim of breach of fiduciary duty and breach of trust.
78. As for the other two claims, the same analyses as explained in relation to LKH apply.
79. At least at the present stage, the claims against HLLY are not demurrable or an abuse of process.
Conclusion
80. In conclusion, the Amendment Summons is granted and the Strike-out Summons is dismissed.
81. I also make an Order nisi that costs (including reserved costs) be to BidCo, with certificate for two Counsel, to be summarily assessed if not agreed. BidCo should submit a statement of costs within 28 days; LKH and HLLY may submit any objections (if so advised, and each limited to 5 pages, which can be in the table form) 14 days thereafter.
82. Counsel for BidCo in their written submissions had asked for certificate for only one Counsel. But, as I have noted at the outset of this Decision, I see all Counsel to have done impressive work. Certificate for two Counsel seems an appropriate recognition.
83. Indeed, I thank all Counsel for their helpful submissions.
(Laurence Li SC)
Deputy High Court Judge
Mr Michael Lok and Mr Billy Liu, instructed by Gall, for the Plaintiff
Mr Jeffrey Chau and Ms Noel Chan, instructed by Deacons, for the 1st Defendant
K T Chan & Co, for the 2nd Defendant was absent
Philip K H Wong, Kennedy Y H Wong & Co, for the 3rd Defendant was absent
Mr Frederick HF Chan and Mr Dexter Leung, instructed by Johnson Stokes & Master, for the Intended 4th Defendant
FOREVER CONCORD LTD AND OTHERS v. LAU KWONG & FUNG (A Firm) AND OTHERS
HCA845/2024 FOREVER CONCORD LTD AND OTHERS v. LAU KWONG & FUNG (A Firm) AND OTHERS
HCA 845/2024
[2026] HKCFI 1543
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 845 OF 2024
________________________
BETWEEN
FOREVER CONCORD LIMITED (Receivers and Managers Appointed)
Plaintiff
ATHORA LUX INVEST S.C.SP. - LOAN ORIGINATION
Intended 2nd Plaintiff
APOLLO CREDIT FUNDS ICAV
Intended 3rd Plaintiff
and
LAU KWONG & FUNG (A Firm)
1st Defendant
YEUNG YET HE
2nd Defendant
FAMEWAY FINANCE LIMITED
3rd Defendant
HAU, LAU, LI & YEUNG (A Firm)
Intended 4th Defendant
________________________
Before:
Deputy High Court Judge Laurence Li SC in Chambers
Date of Hearing:
11 September 2025
Date of Decision:
18 March 2026
________________________
D E C I S I O N
________________________
Two Applications
1. The Plaintiff commenced these proceedings with a Writ and a Statement of Claim (“SOC”) dated 7 May 2024. It took out a Summons dated 22 November 2024 to add the Intended 2nd and 3rd Plaintiffs and the Intended 4th Defendant and to amend the SOC by revising certain wordings and adding new claims (“Amendment Summons”).
2. There appeared to follow a few rounds of tussle amongst the parties (including the intended parties) about filing of evidence which led to repeated time extensions.
3. The 1st Defendant then also took out a Summons dated 11 June 2025 to strike out the Plaintiff’s claims (“Strike-out Summons”).
4. The parties’ positions are essentially that: the Intended 2nd and 3rd Plaintiffs agree to be added to assert their claims; the 1st Defendant seeks to strike out all claims against it as demurrable and/or an abuse of process and on the same bases opposes the amendment; the 2nd Defendant takes a neutral stance; the 3rd Defendant is being wound up and the 1st Plaintiff will not pursue the claims against it; the 4th Defendant denies the claims against it and opposes being joined.
5. Substantive argument took a full day before me. At the end of the hearing, I remarked to Counsel that it was one of the most cleverly and meticulously argued cases I had encountered. I have since reread the written submissions, which reinforce my view that all Counsel have done impressive work.
6. I have also found that, legal arguments aside, once the facts are distilled and put in a sensible order, it becomes plain how the claims should be analysed.
The Facts
7. The parties’ dispute arose from a real estate sale and purchase and loan transaction. The sale and purchase was terminated, but the loan meant to finance the transaction was not repaid. The lending side are now seeking recovery from parties who received or handled the loan proceeds.
8. In more detail, some pertinent facts appear as follows. For present purposes, these facts are not in serious dispute.
9. The relevant property was a house on the Peak (“Property”). Its legal owner was Joy Rich Development Limited (in liquidation) (“Legal Owner”). It was subject to a first mortgage in favour of Revelry Gains Limited (“1st Mortgagee”) and a second mortgage in favour of Fameway Finance Limited, the 3rd Defendant herein (“2nd Mortgagee”).
10. The Legal Owner being in liquidation, the mortgagees put the Property up for mortgagee sale. On the information before me, it appears that the 2nd Mortgagee was spearheading that sale effort.
11. Ms Yeung Yet He, the 2nd Defendant herein (“Buyer”), was interested in buying the Property. To finance the intended purchase, she obtained a loan of up to HK$100 million (“Loan”) from Athora Lux Invest S.C.SP. - Loan Origination and Apollo Credit Funds ICAV, the Intended 2nd and 3rd Plaintiffs herein (“Lenders”).
12. The Loan was structured in a somewhat elaborate way, with a number of arrangements and control mechanisms. The Facility Agreement dated 28 March 2022 (“Facility Agreement”) ran to 140 pages, excluding signature pages.
13. Numerous clauses of the Facility Agreement were cited to me. It is not necessary to set them out. Suffice to summarise the overall design.
14. The Buyer’s wholly owned corporate vehicle Double Winner Asia Limited (“HoldCo”) was named as borrower of the Loan. Its wholly owned subsidiary Forever Concord Limited, the Plaintiff herein (“BidCo”), would be the bidder in the mortgagee sale and (if its bid was accepted) the purchaser of the Property. The Buyer, HoldCo, and BidCo were all liable for the Loan.
15. The Loan was specifically for the sole purpose of, and its use was limited to be in, BidCo making the requisite deposit in order to submit a bid for the Property in the mortgagee sale (“Deposit”). There was even a clause which prohibited the use of proceeds of the Loan to pay for any other part of the purchase price.
16. The Lenders had a right to appoint, and later did appoint a Mr Phillip Mintz (“Mr Mintz”) to be, a director of each of HoldCo and BidCo. Thus the Buyer and Mr Mintz became the two directors of each company. Hau, Lau, Li & Yeung, the Intended 4th Defendant herein (“HLLY”), made the relevant corporate filings for the companies.
17. HoldCo and BidCo were further prohibited from entering into any material agreement other than certain defined documents in connection with the mortgagee sale without the Lenders’ consent.
18. The published document for the mortgagee sale (“Mortgagee Sale Tender Document”) contained provisions stipulating that the Deposit shall be held by Lau Kwong & Hung, the 1st Defendant herein (“LKH”), as stakeholder and not be released to the 2nd Mortgagee until the intended sale and purchase of the Property is completed.
19. Drawdown of the Loan was to be paid to HLLY as solicitors acting for BidCo in the mortgagee sale.
20. The 1st Mortgagee, the 2nd Mortgagee, and their directors were parties to the Facility Agreement and were liable for the due performance by the Buyer, HoldCo, and BidCo of their obligations.
21. The intent and effect of the Facility Agreement were obvious. The proceeds of the Loan may only go towards BidCo making the Deposit in the mortgagee sale. All parties (other than the Lenders themselves) are liable to ensure so. Any deviation would require the Lenders’ consent.
22. Further, clearly the Lenders meant to restrict and was relying on various restrictions on the ability of the Buyer, HoldCo, BidCo, and/or the 2nd Mortgagee to deal with the proceeds of the Loan.
23. The parties to the Facility Agreement were advised by lawyers during the negotiations. The 2nd Mortgagee was advised by LKH. The Buyer, HoldCo, and BidCo were advised by HLLY. Both LKH and HLLY were aware of the contents of the Facility Agreement and Mortgagee Sale Tender Document.
24. On 1 April 2022, the Lenders remitted the full amount of the Loan, i.e., HK$100 million, to HLLY.
25. On 8 April 2022, HLLY for BidCo submitted a bid at the price of HK$320 million to LKH as the 2nd Mortgagee’s solicitors. The requisite deposit was 20% of the bid price. HLLY sent a cashier order in the sum of HK$64 million to LKH. In the cover letter, HLLY stated that this was “subject to your [LKH’s] undertaking to hold the same in accordance with the terms of the Mortgagee Sale Tender [Documents]”.
26. On 4 May 2022, LKH informed HLLY that BidCo’s bid was the highest and the 2nd Mortgagee would cause the liquidators of the Legal Owner to convene a meeting of the creditors to approve the sale. In another letter on the same day, LKH referred to the “deposit of HK$64 million now hold [sic] in our trust account” and sought the Lenders’ consent for it to release HK$42 million to the mortgagees (waiving the requirement that it shall not release the Deposit until completion of the intended sale).
27. By a letter dated 18 May 2022, the Buyer, HoldCo, BidCo, and the 2nd Mortgagee repeated the request for consent. The letter stated that the Deposit was then “with [LKH] who is holding the same as stakeholder of [the 2nd Mortgagee] in accordance with the terms of the Mortgagee Sale Tender Document” and that after the release LKH would continue to hold the balance subject to those terms.
28. The Lenders did not consent. Later they granted a one-time waiver for the release of a much lesser amount of HK$266,400 to be used to settle the government rent for the Property.
29. On 9 March 2023, the 2nd Mortgagee informed the Lenders that the Legal Owner’s creditors did not consent to the intended sale of the Property, thus the intended sale had to be terminated, and that the Deposit held “on trust by [LKH] will be refunded to [HLLY]”.
30. On 7 September 2023, HoldCo and the Lenders agreed that the Loan (plus relevant interest and fees) shall be repaid to the Lenders by 29 September 2023. Repayment, however, did not occur.
31. On 6 October 2023, the Lenders’ solicitors issued demands to the Buyer, HoldCo, BidCo, the 1st and 2nd Mortgagees, and the mortgagees’ directors for repayment. But repayment continued to be outstanding.
32. On 18 January 2024, receivers were appointed and took over BidCo (“Receivers”).
33. On 24 January 2024, the Receivers wrote to HLLY to request details of usage of funds in BidCo’s and HoldCo’s client account.
34. On 30 January 2024, HLLY replied to the Receivers that:
(a) The entire HK$100 million had been paid out;
(b) HK$64 million had been remitted as the Deposit;
(c) HK$12.15 million had been applied to pay for the fees of the Lenders, the 1st and 2nd Mortgagees, and BidCo;
(d) HK$14 million had been paid to LKH on 13 February 2023, with HK$10 million marked on LKH’s receipt as “deposit as stakeholder” and HK$4 million as “cost on account”; and
(e) HK$9,850,000 had been paid to LKH on 16 January 2024, as marked on LKH’s receipt as “further deposit”.
35. A fury of correspondence ensured. On 16 April 2024, LKH informed the Receivers and BidCo that it had already released the Deposit, the additional HK$14 million, and the additional HK$9,850,000 to the 2nd Mortgagee on 7 May 2022, 13 February 2023, and 16 January 2024.
36. These purported payments and releases of funds (“Purported Payments and Releases”) were patently inconsistent with the terms of the Facility Agreement and Mortgagee Sale Tender Document.
37. The explanation offered by the Buyer, HoldCo, BidCo, HLLY, the 2nd Mortgagee, and LKH is that the Buyer, HoldCo, BidCo, and/or the 2nd Mortgagee had entered into a set of Heads of Terms on 1 February 2023 (“Alleged Heads of Terms”) and alleged authorisations, cumulating in a Framework Agreement on 5 January 2024 (“Alleged New Agreement”), for the purpose of restructuring the Legal Owner in lieu of the mortgagee sale.
38. It is said that these documents served to validly authorise the Purported Payments and Releases. It is further said that the Lenders were aware of the negotiations of these matters.
39. These documents are obviously at odds with the overall intent and design as well as the particular terms of the Facility Agreement. They even contain provisions which state so expressly.
40. No explanation has been offered as to how HoldCo and BidCo could properly enter into the Alleged New Agreement, or how LKH or the 2nd Mortgagee could accept or make the Purported Payments and Releases in (at least apparent) contravention of the Facility Agreement, without Mr Mintz’s approval and without the Lenders’ consent.
41. There are other matters which raise questions. For instance, if there were the Alleged Heads of Terms and the Alleged New Agreement, how could the payments of HK$14 million and HK$9,500,000 still be said to be “deposit” and “further deposit”? How could the 2nd Mortgagee say to the Lenders on 9 March 2023 that the Deposit held “on trust by [LKH] will be refunded to [HLLY]”? How could LKH have released the Deposit to the 2nd Mortgagee on 7 May 2022, and still on
42. BidCo contends that it has and has pleaded sustainable claims against the Defendants.
Legal Principles
43. The legal principles governing amendments of pleadings and striking out claims are trite and not in dispute.
44. Amendment especially at an early stage of proceedings should be readily allowed unless the new claim based on the amendment is bound to fail. While the Court is entitled to have regard to merits of the case, it should only do so when the merits are apparently, and so apparent as not to required prolonged investigation. See: Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 (CA) §25.
45. Allegations of fraud, dishonesty or other serious impropriety should be pleaded with sufficient particulars such as to enable an inference of the impropriety to be drawn at trial from the pleaded facts and matters. See: Convoy Global Holdings Limited & Ors v Cho Kwai Chee Roy & Ors [2018] HKCFI 2111 at §10.
46. Applications to strike out any claim will only succeed in plain and obvious case. The claim must be obviously demurrable; the pleading plainly bad; and it must be impossible, not just improbable, for the claim to succeed. However, plain is not the same as simple; obvious is not the same as short. If, on careful analysis, a claim can be shown to be bound to fail, it should be struck out. See: Polyline Development Ltd v Ching Lin Chuen [2021] HKCFI 483 at §§10-15.
47. Two dozen other case authorities were cited to me. They do not add much to and certainly do not contradict the well-known principles.
The Plaintiffs’ Claims
48. Counsel for BidCo have produced a useful table of the claims, both existing and newly raised by the amendment.
49. As I noted above, the Buyer takes a neutral stance. Insofar as the Amendment Summons relates to her, the Summons is granted.
50. As I also noted, the 2nd Mortgagee is being wound up. BidCo will not pursue claims against it. I shall leave it to the parties to consider any necessary consequential amendments.
51. I turn to analyse the claims against LKH and HLLY.
Claims Against LKH
52. BidCo asserts three claims against LKH, said to be for:
(a) Breach as stakeholder contrary to the Mortgagee Sale Tender Document and conditions therein, and/or undertaking, and/or breach of trust;
(b) Dishonest assistance by HLLY, the 2nd Mortgage, and LKH of the Buyer’s and each other’s breach of fiduciary duty and/or breach of trust; and
(c) Unlawful means conspiracy regarding the Loan proceeds.
53. The claim in dishonest assistance is perhaps logically the most straightforward. The pleaded facts, indeed such facts as are not in serious dispute, support an arguable case that the Buyer was acting in breach of her fiduciary duty to BidCo; that HLLY, the 2nd Mortgagee, and LKH knew of this and a constructive trust should be imposed on the funds in their hands; and that they then acted in breach of trust. It is also arguable that HLLY acted in breach of its fiduciary duty to BidCo; that the 2nd Mortgagee and LKH knew of it; and that they then acted in breach of trust.
54. LKH’s and HLLY’s answer is essentially that they were acting on instructions and relied on the instructions as properly authorised. But this answer cannot be a complete one. Whether LKH or HLLY is entitled to rely on alleged instructions, and whether they acted honestly in allegedly relying on the instructions, depend on proof of such instructions and, more importantly, its knowledge of facts potentially vitiating the validity of such instructions.
55. As I have set out above, at least at this stage, the facts do raise questions about these matters. Of course one does not lightly impute fault to a professional person. But it is also true that a professional person can be expected to be more mindful of certain matters.
56. It is difficult to imagine how professionals who have advised on and/or participated in a set of contractual commercial arrangements with a clear overall intent and design could think it right to facilitate payments and releases of large sums of money patently against those arrangements. It is also difficult to imagine why they would not exercise basic prudence and simply sought to ensure the relevant consents were given.
57. After all, the very intent and design of the arrangements which the parties (with advice from professional lawyers) had put in place was so that the proceeds of the Loan, including the Deposit, should not be applied in any way without the consent of the Lenders including, when it came to acts and authorisations by HoldCo and BidCo, through Mr Mintz’s position as one of two directors of those companies.
58. LKH and HLLY had not (yet) proffered much of an answer to the above.
59. Put in another way, it is well conceivable that, at trial, on the pleaded facts and matters, absent further explanations, inferences could be drawn against LKH and HLLY including on the questions of breach of duty, knowledge, and honesty.
60. Counsel for LKH stress that inferences could not be based on conjecture, speculation, and suspicion. See: Convoy Global Holdings Limited at §10. I agree.
61. In the present case, BidCo has pleaded enough concrete facts and matters, including particular clauses in contractual agreements, express assurances in written correspondence, specific payments and releases (with dates and amounts), as well as their effects and inconsistencies.
62. On present materials, the claim for dishonest assistance is not demurrable and not an abuse of process.
63. The claim for unlawful means conspiracy in a sense builds on the claim for dishonest assistance. In another sense, it does not appear to add much. Indeed, the pleaded case, in three short paragraphs, is that the pleaded facts and matters supporting the claim for dishonest assistance also support a claim for unlawful means conspiracy.
64. I was therefore initially attracted to the powerful submissions of Counsel for LKH (as well as those of Counsel for HLLY) that the claim for unlawful means conspiracy lacks sufficient particulars. On reflection, however, I have come to a different conclusion.
65. A claim for unlawful means conspiracy requires four elements: agreement, intention to injure, unlawful acts, and loss. In the present case, that the last element is pleaded is not in dispute. The pleading of unlawful acts is the payments and releases and the attendant alleged breach of duty, breach of trust, and dishonest assistance. Intention to injure is also pleaded and follows from the allegedly improper payments and releases of money which would be detrimental to BidCo.
66. The element of agreement is less straightforward. The fact of an agreement has been pleaded. But, as is well known, agreement should be pleaded with particulars on matters as to parties, time, contents etc. It is in this regard that Counsel for LKH make most of their criticisms. They also make the point that liquidators (and equally receivers) are not relieved of the obligation to plead particulars simply because of a lack of personal knowledge. See: Cyberworks Audio Video Technology Ltd v Mei Ha (HK) Company Limited [2020] HKCFI 398 at §43.
67. In the circumstances of this case, however, these matters are apparent enough from the facts and matters as are pleaded. The parties to the alleged agreement are expressly named and in any event obvious. The contents are also obvious, viz., to make the payments and releases, by way of the unlawful acts, to the detriment of BidCo.
68. Time of the agreement is less obvious. No exact date or time period is pinpointed. But it can be readily deduced that the time must be before the payments and releases. Moreover, in this case, the absence of an exact date or time period does not make it any harder for the Defendants to formulate their respective answer to the allegation of agreement.
69. Thus I have come to the conclusion that the claim for unlawful means conspiracy is not demurrable or an abuse of process.
70. Turning to the claim for breach as stakeholder and/or breach of trust, Counsel for LKH argue that LKH could not have in breach of any obligation because it was entitled to rely on instructions and the validity of such instructions. For the reasons already explained above, this is not a complete answer.
71. Counsel further argue that there was no trust. I agree that a stakeholder is not necessarily a trustee. I am also impressed by Counsel’s meticulous review of the wordings in the various documents, to the effect that a trust is not a foregone conclusion. But one must acknowledge that there are wordings which suggest the parties could have meant LKH to act as a trustee.
72. In addition, the overall intent and design of the arrangements was clearly that the Deposit was to be applied for one purpose only. There is an arguable case for a Quistclose trust.
73. The claim for breach as stakeholder and/or breach of trust is not demurrable and not an abuse of process.
Claims Against HLLY
74. BidCo makes four claims against HLLY, for:
(a) Lack of authority;
(b) Breach of fiduciary duty and/or breach of trust;
(c) Dishonest assistance; and
(d) Unlawful means conspiracy.
75. As I noted earlier, once the facts are distilled and viewed in a logical order, it becomes plain how the claims should be analyzed.
76. For the claim for lack of authority, BidCo has a well arguable case that HLLY could not derive (and could not have believed it had proper) authority from the Buyer’s instructions, given what else it also knew.
77. The same applies for the claim of breach of fiduciary duty and breach of trust.
78. As for the other two claims, the same analyses as explained in relation to LKH apply.
79. At least at the present stage, the claims against HLLY are not demurrable or an abuse of process.
Conclusion
80. In conclusion, the Amendment Summons is granted and the Strike-out Summons is dismissed.
81. I also make an Order nisi that costs (including reserved costs) be to BidCo, with certificate for two Counsel, to be summarily assessed if not agreed. BidCo should submit a statement of costs within 28 days; LKH and HLLY may submit any objections (if so advised, and each limited to 5 pages, which can be in the table form) 14 days thereafter.
82. Counsel for BidCo in their written submissions had asked for certificate for only one Counsel. But, as I have noted at the outset of this Decision, I see all Counsel to have done impressive work. Certificate for two Counsel seems an appropriate recognition.
83. Indeed, I thank all Counsel for their helpful submissions.
(Laurence Li SC)
Deputy High Court Judge
Mr Michael Lok and Mr Billy Liu, instructed by Gall, for the Plaintiff
Mr Jeffrey Chau and Ms Noel Chan, instructed by Deacons, for the 1st Defendant
K T Chan & Co, for the 2nd Defendant was absent
Philip K H Wong, Kennedy Y H Wong & Co, for the 3rd Defendant was absent
Mr Frederick HF Chan and Mr Dexter Leung, instructed by Johnson Stokes & Master, for the Intended 4th Defendant